ACOS VS ROAS

When it comes to assessing the cost of Amazon advertising, understanding the differences between ACOS vs ROAS is crucial. This blog post aims to provide a clear distinction between these two indicators. In addition, we will also cover another important metric — TACoS.

As you read through this post, you will acquire the skills to compute your Amazon ACoS, TACoS and ROAS, evaluate the progress of your business, and optimize the metrics to drive profitability. 

ACoS or ROAS? They both are important metrics in digital advertising, but they serve different purposes. While ACoS helps you understand the cost of acquiring a sale, ROAS provides a more comprehensive picture of your campaign’s performance by measuring the revenue generated.

Here is a brief explanation of the difference between ACoS and ROAS:

In the following sections, I will discuss the specifics of each metric and show a quick way to convert one metric to another, give examples of good and bad ACoS and ROAS, and explain why TACoS should be calculated.

Amazon sellers and advertisers use ACoS as a key performance indicator (KPI) to track the success of advertising campaigns and adjust their strategies accordingly to improve their return on investment (ROI).

Advertising Cost of Sale (ACoS) shows the performance of ad campaigns on Amazon. ACoS is a metric that indicates the correlation between your advertising expenditure and sales revenue. The metric represents the amount spent on advertising to generate one dollar in attributed sales.

Use the formula below to calculate ACoS:

ACOS = (Ad Spend / Ad Revenue)*100

Suppose your total sales revenue is $500, and you spent $100 on advertising to generate those sales. In that case, your ACoS would be 20%:

($100 / $500) *100 = 20%

If your ACoS is 100%, it indicates that your advertising spend is equal to your sales revenue, and you’re not making any profit. 

A value less than 100% indicates that you’re earning a profit, while a value greater than 100% implies you spend more on ads than you earn on sales.

Determining a desirable ACoS for your advertising campaign isn’t as simple as aiming for an “excellent” value. Instead, it’s important to consider a range of factors such as your product’s advertising methods, cost structure, and PPC metrics. 

It’s not uncommon for ACoS to be higher during the early stages of PPC advertising, but with time and well-defined advertising goals, it’s possible to bring it down.

Therefore, it’s crucial to assess the performance of your advertising campaign based on your specific objectives and circumstances rather than trying to meet a generalized benchmark.

However, If your aim is to achieve faster growth, a high ACoS can be acceptable as long as you prioritize volume and speed.

Knowing your Amazon ACoS is crucial for creating effective e-commerce PPC campaigns, setting smart bids on search terms, and generating substantial profits over time, all of which can help your business grow.

Here are five actionable tips for reducing ACoS on Amazon:

Keep a close eye on your campaigns’ performance and make necessary adjustments to optimize your ads. Continuously monitoring your campaigns can help you identify and eliminate underperforming ads, and redirect your budget towards the campaigns that generate the most revenue.

Experiment with different ad formats, such as Sponsored Products, Sponsored Brands, and Sponsored Display ads, to identify which format generates the highest return on investment (ROI).

Continuously monitor the performance of your ads and adjust your bids accordingly. Consider increasing your bids on high-converting keywords and reducing them on underperforming ones.

Ensure that your product listings are optimized for conversion. This includes providing clear and compelling product descriptions, high-quality images, and competitive pricing.

TACoS provides a comprehensive view of your business’s performance.

Total Advertising Cost of Sales (TACoS) is the complete view of your Amazon business. Unlike ACoS, which measures only advertising results, TACoS considers all sales, even those not directly from advertising.

Use the formula below to calculate TACoS:

TACoS = (Ad Spend / Total Sales)*100

In our previous example, we had $500 in sales from ads, and we spent $100 to generate those sales. ACoS is 20%. Let’s say that we generated a total of $2,000 in sales for the same time period. So, TACoS would be:

($100 / $2,000) * 100 = 5%

If your TACoS is above 20%, it indicates that your ads are not generating enough sales, and you may need to optimize your bids and keywords to improve their performance.

A TACoS percentage below 20% indicates that your ads are producing a substantial number of sales and your overall sales are high.

TACoS is important to monitor because it provides a complete picture of your business’s performance, including both advertising and non-advertising sales. By tracking TACoS, you can understand the effectiveness of your entire business strategy, identify areas for improvement, and allocate your resources accordingly. 

Additionally, monitoring TACoS over time can help you identify trends in your business’s performance and make strategic decisions for long-term growth.

ROAS is the flipped version of ACoS.

Return on Ad Spend (ROAS) indicates the amount of revenue generated for every dollar spent on advertising. Essentially, it shows how effectively an advertising campaign is converting ad spend into revenue.

Use the formula below to calculate ROAS:

ROAS = (Ad Revenue / Ad Spend)*100

Let’s go back to our example. We spent $100 on advertising and earned $500 thanks to this ad campaign. To calculate ROAS, we divide $500 in sales by $100 in ad spend:

($500 / $100) *100 = 500%

So, the ROAS is 500%. In other words, for every dollar spent on the ad campaign, we earned $5.

Check out the infographic below to learn what ROAS is considered good:

ROAS serves as a barometer for measuring the triumph of a particular advertising campaign. It’s worth noting that each type of campaign has a distinct target ROAS. For instance, retargeting campaigns require a high ROAS but a low ACoS, whereas prospecting campaigns, aimed at acquiring new customers, necessitate a low ROAS but a high ACoS.

The video from the official Amazon channel below will help you understand how to better manage ROAS for your Sponsored Products campaigns:

Marketing experts prefer ROAS as it measures the efficiency of ad spend and enables easy comparison with other marketing activities. On the other hand, ACoS is useful for assessing the profitability of a campaign and determining the break-even point. 

In summary, ACoS emphasizes costs, while RoAS emphasizes returns.

As you can see, the variables are essentially identical; we’re merely looking at them from distinct perspectives. They aim the same thing: to evaluate whether your ad campaigns are yielding profits or not.

You can easily and quickly convert one metric to another using our ACoS to ROAS calculator: 

While ACoS and ROAS offer similar information, the best approach is to utilize the metric that you feel most confident interpreting.

Mastering ACoS and RoAS will help you achieve your business goals and maximize the profitability of your Amazon store. By gaining a deeper understanding of these concepts, you can equip yourself with the necessary tools to effectively expand your business. Additionally, you will be able to gain more insights into the calculation of sponsored PPC ad expenses, which will ultimately enable you to optimize your advertising strategies.

Check out our article on how to increase e-commerce sales and learn about proven techniques that can help you grow your business.

Take your Amazon sales to the next level with expert Amazon PPC management — contact us now!